Qatar cenbank asks lenders to shut down Islamic units

Country's commercial banks ordered to close Islamic banking operations by end of 2011
Qatar cenbank asks lenders to shut down Islamic units
BANK DIRECTIVE Qatars central bank ordered commercial banks to close Islamic banking operations by the end of 2011 (Getty Images)
By Reuters
Sun 06 Feb 2011 02:22 PM

Qatar's central bank ordered commercial banks to close Islamic banking operations by the end of 2011, sources said on Sunday, a surprise move seen hurting conventional lenders in the Gulf Arab state.

The central bank issued a circular over the weekend, saying "it has been decided to terminate the activities of the Islamic finance services" offered by conventional banks. The order is effective immediately but provided lenders with a grace period until December 31 to shutter operations, the sources said.

"I don't think anyone was expecting it. It certainly came as a surprise, and will affect us and others quite materially," said a Doha-based banking source who did not want to be identified.

"My understanding is that by the end of the year, all banks have to have the Islamic assets off their balance sheets. But we're still trying to figure out what it means."

Banks effected by the directive include Qatar National Bank (QNB), HSBC, Doha Bank, Commercial Bank of Qatar, Al Ahli Commercial Bank and International Bank of Qatar.

QNB shares fell 4.5 percent according to bourse data, while shares of smaller rival Al Ahli was down 6.7 percent at 09GMT.

Sources at two of the banks said that they will seek clarification from the central bank for options available and whether they will be able to pursue a banking licence for their Islamic operations after the withdrawal.

But for standalone Islamic banks, the central bank's edict may prove to be a windfall.

"It's going to be very positive for us. We'll have a much bigger customer base. We see it as a very positive move," said Adel Mustafawi, chief executive of Masraf Al Rayan.

The stock jumped 10 percent on the move.

"(The central bank's) motivation is that they don't want to mix the two. They want each to focus on their own business: either this or that."

Shares of Qatar Islamic Bank rose 8.4 percent.

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